A problem with trading values for an investor is determining which public company stocks is a good investment. Merely looking at daily trading values only tells the investor the value of a share, but not the value of the company itself. The daily trading values gives the investor a false sense of comparing one stock to another.
A mutual fund (a collection of equities) compounds this problem because every corporation has a different quantity of outstanding shares. Currently there is no adequate methodology to combine two or more corporations in a mutual fund to abstract a return on investments because every public corporation has a different quantity of outstanding stock.
The current way to measure the performance of an equity investment is its' trading value on a day to day basis. Example, if the stock is worth $10 today and $12 tomorrow, then it is looked at as a 20% performance of the stock, and gives a false appearance that the company is more valuable. This can occur whether or not the company behind the stock is producing any positive earnings or is losing money. Another example, are internet stocks which have a history of fast increases in value, but have little or no positive earnings or any positive cash flow.
There is no number that ties financial statements into the everyday stock market except earnings per share. These earnings per share are done quarterly of one year to another, which is not real time. The current techniques are limited to looking at past data and not to the most current data which occurs in the last quarter or the last week.
There is no consistent way of tying old data into the financial statements. Earnings per share are the only connections between the stock market and the financial statement. Earnings per share is generally based on taking a number (the last number on an operating statement) and dividing it by the average number of outstanding shares.
For example, two companies each earning same dollar earnings, but one company has substantially more or less outstanding shares does not allow for a fair comparison between the companies. The investor would tend to believe that the company with the higher earnings per share in this comparison is the better investment when the opposite may be true.
Earnings per share between companies do not give a good spread indicator between the companies as a percent of sales. For example, companies only being a few percent apart after deductions for income tax deductions does not give an adequate indication of the valuation of that company.
Also, investors will be unsure of the investment potential of stocks in combination with one another. Once again because there is no accountability for the number of shares outstanding, even a Google® having a high percent of sales will have a difficult time retaining such performance criteria in a merger or acquisition combination.
Generally, it is known that traders generally trade equities based on earnings per share, and investment bankers invest in equities based on cash flow, accountants are knowledgeable about cash flow to the dollar, and company management understands little of cash flow and instead relies on the limitations of others such as traders, investment bankers, accountants and the like.
Various types of inventions have been proposed over the years that attempt to analyze financial instruments. See for example, U.S. Pat. Nos. 6,292,811 to Clancey et al.; 6,564,191 to Reddy; 6,856,972 to Yun et al.; 7,165,044 to Chaffee; 7,349,877 to Ballow et al.; and U.S. Published Patent Applications: 2002/0123952 to Lipper, III; 2003/0200164 to Jacobs; 2005/0234794 to Melnicoff et al.; and 2006/0212376 to Snyder et al. However, none of these approaches solves all the problems with the prior art.
Thus, the need exists for solutions to the above problems with the prior art.